Key Events And Issues In The Coming Week

After last week's economic fireworks, this one will be far more quiet with earnings dominating investors' attention: US financials reporting this week include JPM and Wells Fargo tomorrow, BofA on Wednesday, GS and Citi on Thursday, BoNY and MS on Friday. Industrial bellwethers Intel (Thurs) and General Electric (Fri) are also on this week’s earnings docket. On the macro front, this coming week we have two MPC meetings - both in LatAm. For Brazil consensus expects a 25bps hike in the policy rate. For Chile consensus forecasts monetary policy to remain on hold. Among the data releases, one should point out inflation numbers from the US (CPI and PPI), Eurozone, the UK and India. We also have three important US producer and consumer surveys - Empire Manufacturing, Philadelphia Fed (consensus +8.5), and U. of Michigan (consensus 83.5). Among external trade and capital flow stats, we would emphasize US TIC data, as well as current account balances from Japan and Turkey. Finally, the accumulation of FX reserves in China is interesting to track as it provides an indication of CNY appreciation pressure.

With seven Fed speakers scheduled for the week, including Bernanke, the markets could get a better sense of the Fed's thinking after the weak labour market data last Friday.

Brazil MPC: GS and consensus expect a 25bps hike in the policy rate to 10.25%yoy. Given the dovish central bank undertones contained in both the minutes of the Nov 27 Copom meeting and the subsequent Quarterly Inflation Report (QIR) we expect the Copom to moderate the magnitude of rate hikes (following five consecutive 50bp moves). However, given the pressure on the BRL, the December IPCA inflation surprise which frustrated the central bank public commitment to deliver inflation in 2013 below the 5.84% level of 2012, and the stickiness of headline, core, and inflation expectations, we assess a 35% probability of another +50bp hike on Jan 15.Brazil IGP-10 Inflation (Jan): GS +5.60%yoy: previous +5.39%yoy

Headline retail sales are set to clock in at a lacklustre 0.1% mom in December. Retail control, excluding movements in auto, building materials and gasoline outlays, is forecast to climb by a healthier 0.5%. A jump up in January consumer confidence, with the preliminary Michigan report forecast at 88, should ease any downside fears on the US consumer, however. The January district Fed survey are expected to show some further improvement, consistent with the PMI manufacturing index remaining in the 56.4 to 57.3 range seen over Q4. Finally, we expect housing starts to take a breather in December with a pullback, but forecast a gain in building permits.

UK HOUSING DATA TO BE CLOSELY WATCHED BY FPC

The RICS housing survey will offer further evidence as to just how strong the housing sector is. As highlighted by Chief UK Economist Brian Hilliard in 2014 - tasks for the FPC and MPC, we expect the FPC to be left to deal with any excesses rather than the MPC in 2014. December CPI is set to clock in close to target at 2.2%, slightly up from 2.1% in November as utility price increases start to bite. We forecast December retail sales at -0.2% mom or +2.7% yoy in volume terms.

BCB TO HIKE SELIC RATE TO 10.25%

Inflation and inflation expectations will drive a final 25bp rate hike from the BCB in this cycle on Wednesday. Already at 10%, the Selic target is having a visible impact on the real economy. To the mind of our lead Brazil Economist, Dev Ashish, this just serves to illustrate that Brazil is facing a classic stagflation scenario where reforms are critical for both growth and inflation and where the size of real interest rate increases required to fully control inflation would simply stifle the real economy.